Checkspring Bank, a Bronx, N.Y., start-up that caters to underbanked consumers, is promoting an alternative to refund anticipation loans through a partnership with the financial education nonprofit Ariva Inc.
Last month Ariva began offering free tax-preparation sessions in the five-month-old bank's only branch.
Participants are encouraged to open accounts with Checkspring. Doing so lets them file their returns electronically and have any refunds, including earned income tax credit refunds, directly deposited — speeding delivery of their funds and curbing their dependence on refund anticipation loans and other high-cost sources of cash.
Account holders can get a MasterCard-branded debit card or an automated teller machine card.
Charles R. Wilcox, the president and a co-founder of Checkspring, said Friday that "our first clients" through the program "are actually getting their funds today" instead of waiting weeks for their return like many traditional tax filers.
Earned income tax credits, which many qualifying participants do not apply for because they do not have bank accounts and cannot afford check-cashing fees, are one of a few opportunities for the underbanked "to save and begin to develop some wealth," Mr. Wilcox said. Encouraging consumers to apply for earned income tax credits and open Checkspring accounts also helps build the bank's small base of accounts. Mr. Wilcox estimated that Checkspring's number of accounts has grown by about a quarter, to 375, since the bank entered the partnership with Ariva.
About 10% of consumers who participated in the tax-preparation sessions have signed up for accounts, Mr. Wilcox said. He said he doubted many of them had bank accounts before that. "It seems to be getting a pretty good take-up."
He was unsure what percentage of total deposits would remain with Checkspring a year down the road (a more important number to profitability). "I think the balances in the accounts are critical," he said. But, he said, "we don't see it as a profit center … we see it as the right thing to do for our community."
He said the bank is funded by private investors but is unlikely to become profitable for another two years.
Checkspring also plans to join a privately funded antipoverty program backed by New York Mayor Michael Bloomberg that pays underbanked New Yorkers to open savings accounts at local banks and credit unions. Participation in the Opportunity NYC program should help Checkspring further develop its accounts and deposit base, Mr. Wilcox said.
The tax-preparation services are available for the next two months at Checkspring and for part of that time at mobile sites set up around New York City with local banks, community boards, and outreach groups.
This is the fourth tax season that Ariva and Checkspring have partnered to offer free tax-preparation services but the first time Checkspring has been able to accept deposits insured by the Federal Deposit Insurance Corp. (It rented the space for the branch for several years before it received a bank charter.)
Mr. Wilcox, a former vice president of strategic business development at Citigroup, said he became interested in the underbanked while consulting with a credit union in upstate New York. He said he hoped to open additional Checkspring branches "in the next year or so."
H&R Block Inc.'s savings bank recently introduced a line of credit for up to $500 on its prepaid Emerald card, which can be used to store earned income tax credit and other tax return funds.
